Since the introduction of commercial papers in 2017, four incorporated companies have raised Nu 2.77B to meet its short-term financing needs.

Commercial paper is a short-term debt instrument issued by a corporation, typically for the financing of accounts payable and inventories, and meeting short-term liabilities. It is usually issued at a discount rate, which reflects the interest rates. It is similar to bond but carries lower interest repayment due to shorter maturities, usually less than a year.

For instance, if a company needs to finance its inventories or pay its employees but is running out of cash, the company can issue commercial papers promising the buyer a return with interest upon maturity to meet the cash flow for time being.

The Royal Securities Exchange of Bhutan (RSEBL) has introduced the platform for such activities last year. The stock exchange acts as a payment agent and it has also framed rules and regulation.

All incorporated companies including the financial institutions are permitted to raise short term finances through issuance of commercial papers provided the net worth of the company is not less than Nu 5 million as per the latest audited balance sheet and is backed by collateral such as time deposits, receivables, inventories and other assets. Alternatively, the company may also seek corporate guarantee from its holding company or guarantees from any financial institutions.

However, all individuals, financial institutions and other corporate bodies and unincorporated Bhutanese private firms are eligible to invest in commercial papers.

For the financial institutions, with prior approval from the Central Bank, they can also invest their excess funds parked with the Central Bank as reserves.

Druk Holding and Investments (DHI) is the first corporate entity to issue commercial papers worth Nu 870 million at a discount rate of 2.5 percent. The issue was oversubscribed by 74.7 percent by three institutional investors. The commercial paper was redeemed on March 23, 30 days after the issue.

Likewise, the Nubri capital, a fund management company issued commercial papers worth Nu 100M at a discount rate of 4 percent for 120 days. While the issue was oversubscribed by four percent, the company redeemed the amount with interest on September last year.

Druk Green Power Corporation also issued its first commercial paper worth Nu 1.7B at a discount rate of five percent with a tenure of 96 days. This was oversubscribed by about 30 percent by five subscribers. This too was redeemed in September last year.

The State trading Corporation of Bhutan (STCBL) issued the most recent commercial papers for Nu 100M at a discount rate of Nu 3.5 percent for 184 days. This will mature at the end of February this year. Bank of Bhutan subscribed the entire issue at a face value of Nu 100,000 for 1000 commercial papers.

Tshering Dorji